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r Acc to Heckscher-Ohlin theory and Comparative Advantage theory
E.g. A nation uses its resources very productively͙ BUT HOW?
r Above theories give only Partial Explanation to the Question.
r Porter͛s Diamond Model is used to solve this puzzle
r Developed in 1990, by Michael Porter of the Harvard Business
School.
r Porter theories 4 Broad attributes ʹ Factor Endowment, Demand
r conditions, Related/Support industry, Firm Strategy and rivalry.
r Additional Variables that influence are Government and Chance
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Michael Porter tried to explain why a nation
achieves international success in a particular
industry and identified four attributes that
promote or impede the creation of competitive
advantage:
rFactor endowments
rDemand conditions
rRelating and supporting industries
rFirm strategy, structure, and rivalry
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rFactor endowments refer to a nation͛s position
in factors of production necessary to compete in
a given industry
rA nation's position in factors of production can
lead to competitive advantage
rThese factors can be either basic (natural
resources, climate, location) or advanced (skilled
labor, infrastructure, technological know-how)
 
   

rDemand conditions refer to the nature of home
demand for the industry͛s product or service
rThe nature of home demand for the industry͛s
product or service influences the development
of capabilities
rSophisticated and demanding customers
pressure firms to be competitive
 
   

r Home country Demand plays an important role

r Enables better understand the needs and desires of

the customers

r It shapes the attributes of domestically made

products and creates pressure for innovation and
quality
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rRelating and supporting industries refer to the
presence or absence of supplier industries and
related industries that are internationally
competitive
rThe presence supplier industries and related
industries that are internationally competitive
can spill over and contribute to other industries
rSuccessful industries within a country tend to
be grouped into clusters of related industries.
E.g.
r Switzerland's success in pharmaceutical industry is closely related
to its international success in technical dye industry.

E.g.
r Swedish strength in fabricated steel industry is the reason for
development in the Sweden's specialty steel industry
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rFirm strategy, structure, and rivalry refers to the

conditions governing how companies are
created, organized, and managed, and the
nature of domestic rivalry

rVigorous domestic rivalry creates pressures to

innovate, to improve quality, to reduce costs,
and to invest in upgrading advanced features.
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r Countries should be exporting products from

those industries where all four components of
the diamond are favorable.

r While importing in those areas where the

components are not favorable.